The Time Machine is the dream of many (especially those who bet on sports) and I’m excited to see if we will be able to travel through time shortly as physics scientists confirmed that it is possible. In the meantime, we could profit or at least be prepared for the future using the market’s time machine.
Last week a textbook example of a “Flash Crash” occurred in the silver market when the price dropped almost 2 dollars (10%) within a minute! It’s amazing that gold was untouched by this event creating an arbitrage opportunity as all discrepancies are subject to speculative trading. That’s why I put the silver analysis first this time to show the map for a possible gold move. By the way, it is quite often that silver is the principal instrument for market movement as it has less liquidity and therefore more opportunities for market “gangsters” or “pirates” to attack it.
Chart 1. Silver Daily
Chart courtesy of tradingview.com
After silver breached the previous major low established last December at the $15.64 mark the map has changed. What was tagged as a first move up turned out to be a tiny countertrend conjunctive move within the small complex correction contoured with the red downtrend. The Flash Crash drop almost reached the downside of the red channel, which could finish that small complex correction.
I added the blue zigzag to illustrate my assumption of the new broader market picture. Now I am more confident that we are in a large complex correction, which could take about two years in total to complete (2016-2018). The shape of this correction reminds me of a parallelogram (geometric figure with the parallel sides). It implies that the CD segment would retest the major top established a year ago at the $21.13 mark. I reckon that the CD segment could imply Fibonacci ratios exceeding the par.
We are approaching the period when the C point of CD segment would be established if not done yet. In spite of severe drop last week the price could still drop lower to retest the A point’s low at the $13.65 mark.
Risk takers should buy silver on dips as the support is very close and risk/reward ratio is very high (Risk around the $13 level Vs. Reward around the $21 level). Those who wait for confirmation need the price to break above the upside of the red downtrend (less risk less reward).
Chart 2. Gold Daily: Short Is A Sure Bet?
Chart courtesy of tradingview.com
The gold has a similar chart structure as silver, but different price action at the extremes. Both metals have similar tops in the middle of April and similar bottoms in May, but gold has a higher high last month compared to the lower top in the silver chart same period. This could be a possible reason why silver broke support earlier.
If the gold would repeat silver’s drop, we could see sub-$1100 levels ahead. It’s a huge drop from the current level. The price already broke below the previous low established at the $1214 level this May and closed last week below it. The next hurdle is the March’s low at the $1195 mark.
But the main barrier would be the last December’s low at $1122. This level is critical due to the crucial structure point located here. The breach of it would invalidate the growth structure and like in the silver chart would be deemed as a conjunction segment inside of the complex correction downside.
It is early yet to talk about the CD segment as the price just reached the middle of the whole structure at the $1210 mark. Nevertheless, I applied the same blue zigzag to let you have the possible map for gold’s move. The C point would be crucial to measure the CD segment, although I think we should retest the AB segment’s peak at the $1375 mark.
Intelligent trades!
Aibek Burabayev
INO.com Contributor, Metals
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
dear aibek,
just in the same manner as Since long, i am warning any bull probability at list at this juncture, so There are more chances like market first prefer to test $1122 and going on afterwards, even of testing lower level of $ 1050 is looking quite possible rather then test $ 1375 again. I have not made any precised time factor, but i goose that until December still it is difficult for both Gold and Silver, in fact silver is safer then gold in percentage terms.
Traditional trend lines and even Fibonacci radios do not work in a heavily manipulated markets like silver and gold . If you could determine the plan of the central banks you would be ahead of the game.
thank you, your article gave confidence to hold the trade.